Upfront: Health-Care Cost Juggernaut Slowing

Good news for CFOs: Increases in health-care insurance premiums won't be as steep in 2006 as in the previous five years.

The increases in premiums for most types of health-care insurance coverage will be lower in 2006 than they were this year, according to the Segal Co.'s annual Health Plan Cost Trend Survey, which analyzes data from managed-care organizations, health insurers, pharmacy benefit managers and third-party administrators. Segal predicts 2006 will be the third consecutive year of the lower-rate trend. The projections are still in the double digits, however, with increases in most lines hovering around 12 percent. The sharpest deceleration will come in prescription drug coverage. Increases in this line will slow to around 14 percent next year, down from a peak of about 20 percent in 2001.

The slowdown is welcome news to finance executives and benefits managers alike. But while the health-care cost juggernaut has slowed, it's still rolling. Health-care inflation will continue to outpace both workers' earnings and inflation in the economy at large next year. Over the past five years, health insurance premiums have skyrocketed 73 percent, compared with a cumulative inflation rate of around 14 percent and cumulative wage growth of 15 percent, according to a new study by the Kaiser Family Foundation, headquartered in Menlo Park, Calif., and Chicago-based Health Research and Educational Trust (HRET). Consequently, a shrinking 60 percent of companies offered health coverage in 2005, down from 66 percent last year and 69 percent in 2000.

The Kaiser/HRET study also notes that one-fifth of companies that offer health insurance now provide a high-deductible plan, defined as a program with at least a $1,000 deductible for single coverage or a $2,000 deductible for family coverage. That's a big jump from 2003, when these plans accounted for just 5 percent of employee-sponsored health-care offerings.

High-deductible plans have been touted as a key component of a "consumer-driven" approach to health care when offered in conjunction with health reimbursement arrangements (HRAs) or health savings accounts (HSAs), tax-favored accounts that employees can use to meet medical expenses. But the Kaiser/HRET study found no evidence that HRAs or HSAs are commonly offered alongside high-deductible plans. Among all companies that offer health benefits, just 1.9 percent offer an HRA in combination with a high-deductible plan, and 2.3 percent offer an HSA-qualified high-deductible program.

"Consumer-driven plans are proving attractive to some, but with just a couple million people now enrolled, it's too early to know whether they'll have a meaningful effect on the health system," says Gary Claxton, a Kaiser Family Foundation vice president and co-author of the study. "The jury is still out on whether employees feel that these arrangements work for them, particularly when they get sick, and on whether employers feel that they have a real impact on costs."